Small and Medium-sized Enterprises: Mistreatment

Lord Sharkey Excerpts

Thursday 27th June 2019 Lords Chamber

[Lord Sharkey (LD)]

My Lords, the report we are considering has already attracted a lot of comment—all of it unfavourable. The chair of the TSC said:

“This long overdue report will offer no solace to those who suffered from the disgraceful actions of RBS’s GRG”.


Kevin Hollinrake, co-chair of the APPG on Fair Business Banking, said that the report is a,

“complete whitewash and another demonstrable failure of the regulator to perform its role”.

The SME Alliance said that it was deeply disappointed with the regulator. The Times of Friday 14 June said that the report was,

“a masterful study in pointlessness”,

an insult to victims, and that it demonstrated a,

“sloppiness that underlines the paucity of the FCA’s investigation”.

Last Friday’s Financial Times was also critical. It said that the,

“report into the GRG scandal at Royal Bank of Scotland, which found that nobody was to blame, is a scandal in itself”.

None of this criticism is surprising or ill-founded. The whole sorry history of the GRG and RBS is littered with failures. The first failure was within the GRG. My noble friend Lady Bowles listed these failures and their dreadful consequences. The second failure was within RBS, and extends to board level. Promontory, talking about the issues of malpractice and mistreatment, says explicitly that,

“we view these issues as part of an intentional and coordinated strategy … to focus on GRG’s commercial objective and to place inadequate weight on the interests of its SME customers”.

Promontory explicitly implicates the bank itself—RBS—in these failings. It concludes:

“It is clear that the bank was aware, at least in part, of some of these failures but, it would appear, chose not to prioritise action to overcome them”.


In other words, the GRG was systematically ripping off some of its vulnerable customers and the bank knew this but did not intervene.

This is a gross failure of responsibility on the part of RBS, or at least very clear evidence of complete incompetence—and it gets worse. From April 2009, RBS had adopted a group-wide policy on the FCA’s treating customers fairly principle. This applied to GRG. Promontory notes:

“Despite this, we did not see how GRG management would have been able to satisfy itself that the TCF had been properly implemented and embedded in GRG. In our view, it was not”.


Presumably, either RBS was aware of the failure and did nothing, or it was unaware of it. Either way, there are surely grounds for resignations or sackings.

The third failure is therefore that of the regulator, the FCA. I say this with some reluctance. I have been an admirer of Andrew Bailey and believe that the FCA has become a significantly improved regulator under his leadership, but this belief has been tested of late, what with the LCF and the Neil Woodford affairs on top of the GRG debacle. Now we have the FCA’s report on the GRG affair, which reads as a rather desperate attempt at exculpation. It is clear that the FCA has acted late, reluctantly, defensively and very weakly. I agree with Kevin Hollinrake that the report is a whitewash. It is also an evasion of responsibility. The FCA report fails to discover—or declines to name if it has discovered— those in the GRG in RBS responsible for the malpractice and mistreatment of SMEs and the breaching of the TCF principle.

It is clear, on the one hand, that terrible things happened and, on the other, that nobody was named, punished or sanctioned. Then there is the question of the fit and proper test. The FCA report states on fitness and propriety:

“While those directly affected might think the conduct of senior management was deficient in GRG, we do not believe we would have reasonable prospects of bringing successful prohibition proceedings against any member of senior management”.


That is not only weak but unevidenced. It is either false or, if true, a perfectly clear illustration of the gulf between ordinary, common-sense language and its interpretation by the FCA. The proven persistence, scale and damage of GRG’s malpractice must surely be evidence that those responsible are absolutely not fit and proper persons in any reasonable sense of the words. If the FCA persists in its refusal to use its fit and proper person powers, the Government should ask it to rethink the whole regime. Does the Minister agree?

Perhaps the most worrying aspect of the FCA’s report is on page 73, where it discusses what, had the SM&CR been in place, it could have done about GRG. It reaches the feeble conclusion:

“We cannot say whether we would have been able to bring successful cases against RBS senior management had the SM&CR been in force”.


What does this say about the effectiveness of the SM&CR? Does it mean that the equivalent of GRG’s malpractices, if carried on now, could not lead to the punishment of individuals? What is the Government’s view on that?

This has been a sorry tale of malpractice. There has been wrongdoing but no consequences for the wrongdoers. There has been some compensation for victims, but not nearly enough. There is no clarity about whether our regulatory regime could have prevented this malpractice or could in future prevent such malpractice. There are questions as to whether the fit and proper test is in itself fit for purpose.

Promontory recommended that the FCA should work with the Government to extend the protections available to SME customers. Is that in fact happening and, if so, what progress has been made? Finally, does the Minister agree with the chairman of the Treasury Select Committee, who said that the FCA’s ruling showed that the regulators should be given powers to regulate commercial lending:

“Otherwise, scandalous events such as those at GRG could recur”?